Microsoft Warns Of Tax Law Consequences

Microsoft CEO Steven Ballmer offered an unwelcome economics lesson to the Obama administration this week: Higher taxes have consequences that Washington policy-makers may not especially like.

Ballmer said on Wednesday that if Congress enacts President Obama's plans to impose higher corporate taxes, it makes sense for Microsoft to move jobs offshore.

"It makes U.S. jobs more expensive," Ballmer said, according to Bloomberg News. "We're better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S."

Last month, the president announced a plan to rewrite tax law by preventing U.S.-based multinational companies from "deferring" and keeping profits offshore, which can lower their tax bills.

The current U.S. corporate tax system is unusual because it taxes income that Microsoft and other companies make in other countries, even if they already paid foreign taxes on that income. That makes U.S.-based companies less competitive than, say, Irish firms that don't pay taxes on foreign income and aren't hit by double taxation; deferred taxation is a way to lessen the sting.

If deferred taxation is eliminated, it becomes more tempting for a company to move its headquarters from Seattle to Dublin. That's voting with your feet.

Which is why business groups have opposed the president's plan. The U.S. Chamber of Commerce says it will "impede growth in the U.S. economy, (and) cause the loss of jobs." The National Foreign Trade Council called it "counterproductive."

Microsoft says it employs about 95,000 people worldwide, and about 56,500 in the United States.

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    Declan McCullagh is the chief political correspondent for CNET. You can e-mail him or follow him on Twitter as declanm. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.